In early 2025, Trump’s tariff rollercoaster has turned Wall Street into a house of cards—how can options traders stay ahead of the chaos?
Trump’s second term and the aggressive trade policies, such as his tariffs on Canada, Mexico, and China, as well as threats to the EU, have dominated headlines by March 15, 2025. It’s led to significant market turbulence. While Trump has a long-term vision of bringing domestic production of goods and services back within the US borders, his trade policies are injecting unprecedented volatility into financial markets, creating both risks and opportunities for options traders in 2025.
Our guide on Trump’s economic policies will explore these dynamics and offer actionable insights. Remember that options traders can profit even when the financial future looks uncertain. We’ll discuss how to benefit from the current circumstances by using volatility plays on affected sectors of the economy, hedging risks with protective puts, rotating your investments into sectors where you can correctly bet on the right direction, and using resources like the Relative Strength Index, Bollinger Bands, and X (Twitter) to inform your strategy!
Background—Trump’s Trade Policies in 2025
Let’s set the stage with an overview of the key policies that the Trump administration is hoping to enact during their second term in the Oval Office. In addition to tariffs on countries like Canada, Mexico, and China, the Trump White House is running tariffs on key imports like steel and aluminum in a resurrection of 2018’s Section 232 Tariffs. We’ll talk a bit about how the markets are reacting to these memorandums and fact sheets released by the administration and why they matter to options traders.
Overview of Key Policies
Let’s look at the major trade actions taken by the Trump administration thus far. Their stated goal is to boost the US manufacturing sector, but the announcements have had a flip-flopping nature where there are initial threats followed by rollbacks and reinstatements. Trump’s process to implement these policies has, understandably, led to a lot of uncertainty in trading markets and in the investment world.
Major Trade Actions Taken by March 2025
Date | Details |
|---|---|
January 20 | America First Trade Policy Referendum: An outline for the trading priorities of the Trump administration was released in a memorandum. It included a directive for agencies and departments to complete studies by April 1. |
February 1 | Tariffs Begin on China, Canada, and Mexico: Executive orders are issued by Trump to implement tariffs on these three countries beginning February 4. Trump’s orders ended low-value packages and duty-free de minimis treatment from these nations. |
February 10 | Tariffs on Steel and Aluminum: It’s announced that Trump is imposing a 25% import tariff on steel and aluminum, which is an adjustment of the Section 232 tariffs on those metals that were originally imposed in March 2018. |
February 13 | Memorandum for Reciprocal Trade and Tariffs: The Trump White House releases a statement, memorandum, and fact sheet that outlines the problem and the administration’s solutions/plan to counter non-reciprocal trade arrangements. |
February 21 | America’s First Investment Policy Memorandum: The White House releases another fact sheet and memorandum that outlines Trump’s policies toward inbound foreign direct investments and a fast-track policy for investments from certain trading allies or partners. |
February 21 | Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalities Memorandum: The White House releases another fact sheet and memorandum that outlines concerns about foreign treatment of US digital companies. It requests the US Trade Representative to re-examine any digital service taxes of countries like France, Italy, Turkey, and the United Kingdom. |
March 4 | Higher Tariffs for China: An order goes into effect raising the Chinese tariffs from 1% up to 20%. |
March 6 | Canadian and Mexican Imports Are Exempted: The White House releases a fact sheet and executive order exempting Canadian and Mexican tariffs to satisfy USMCA rules of origin requirements. This amends the March 4 tariffs and it effectively lowers the tariff on potash down to 10%. |
Economic and Market Reactions
The impact of Trump’s economic plans was immediately felt in the markets. The S&P 500 closed down 8.6% from its peak (a February 19 record high). The market shed more than $4 trillion in value since. It’s now nearly a 10% decline which is technically considered a correction for the index. Much like the S&P 500, Nasdaq is also in correction territory, currently down 10% from its high in December.
Because both indices are in decline, there have been rising recession fears. You can see it with actions like Goldman Sachs and JPMorgan revising odds upward. Outside of the trading and investment worlds, there are fears on the part of the average, everyday American consumer about how the tariffs could affect the prices of ordinary goods and services.
Why Options Markets Care
Perhaps the reason you’re reading this is that you’re an options trader, and you’re interested in taking advantage of the situation to make some money. Because options trading thrives on volatility and uncertainty, Trump’s often unpredictable trade policies are fertile grounds for succeeding in the options trading market. Trump’s economic plans are the perfect storm for increased implied volatility (IV) and trading volume.
How Trade Policies Impact Options Markets
In what ways are Trump’s trading policies impacting the options markets? We’ll explore how Trump’s unpredictable policy implementation is shaking up the markets with volatility and some of the specific sectors that are being affected the most. Learn about the various options trading strategies you can use this time to capitalize on these shifts and still lock in a profit.
Volatility Surge
Tariff uncertainty has driven up the CBOE Volatility Index (VIX), with 100-day annualized volatility for the S&P 500 rising from 10% pre-election to nearing 15% in 2025. Many people have concerns about an impending trade war and it is having a significant impact on their investments in the stock market. However, this can have positive impacts on the options markets, setting up the conditions for options traders to benefit.
You must understand that there’s a considerable link between trade war fears and higher options premiums. Uncertainty about the future of the markets leads to increased volatility, which in turn increases the cost of options contracts for traders. A popular strategy to use in events like we’re seeing with the Trump tariffs are protective puts, which can safeguard a trader’s investment when geopolitical uncertainty looms Protective puts can still generate profits amid a possible trade war, but the price paid to enter these options contracts (the premiums) is going to be significantly higher due to increased IV (implied volatility).
Sector-Specific Shocks
Automotive
Due to tariffs on goods coming from Canada and Mexico under the Trump administration, automakers like Ford or GM who source goods from these countries are expected to see increased costs for assembling vehicles in North America. The Trump tariffs disrupt the flow of cross-border supply chains which leads to increased costs for automakers. This could lead to potential price hikes for the consumer. Many automakers will have to reconsider their supply chains and likely shift production into the US to avoid costly tariffs which could lead to production delays, increasing the cost of goods.
As a result of this automotive industry disruption, options on these stocks see wider spreads and higher IV. Wider spreads suggest lower liquidity which means fewer buyers and sellers. Coupled with high implied volatility due to system disruptions, wide spreads can lead to higher premiums to trade options on automaker stocks.
Tech
The “Magnificent Seven” tech companies, including Apple and Nvidia, face supply chain risks from China tariffs, leading to bearish option activity. This is due to many of the leading tech companies heavily relying on China to manufacture the goods. The Trump tariffs would increase the cost of tech products, smartphones, laptops, gaming consoles, and other electronics, which will lead to more expensive options premiums, that is, until these companies could find a way to produce their goods in the US.
If you’re dealing with tech company stock options, right now is the time to begin buying put options because they can directly hedge risk for traders who might be concerned about possible declines in the tech sector.
Energy
Oil price swings are also happening due to global demand fears, which end up boosting options on energy ETFs like XLE. You can see this clearly with Brent at $68-$76/barrel. Considering that volatility is at play with the oil price swings, it might be the best move for traders to use straddles or strangles when dealing with options in the energy sector. You don’t have to get the direction of the prices right to profit, just correctly bet on volatility being a factor.
Currency and Commodity Plays
In the wake of Trump’s tariffs on Canadian and Mexican imports to the United States, the Canadian dollar and Mexican peso weakened in value. Traders’ expectations for further market volatility are driving shifts in these currency valuations. You could take advantage of these declining currencies by selling them and buying other currencies like the US dollar, which could appreciate, locking in a profit by the difference.
It’s key to note that right now, gold has climbed toward $2,900/ounce, which has led to increased call option activity as a safe-haven bet. Commodities, in general, are a good hedge against the volatility that comes with currencies and their value fluctuation.
Opportunities for Options Traders in 2025
Even though Trump’s economic plans are having some negative impacts (for now) on a few US industries and the way they conduct business, there are plenty of opportunities for traders to profit from these scenarios as the heads of automotive and tech sectors are reconsidering their supply chains and possibly moving production to the US. This section will talk about leveraging volatility, hedging against the uncertainties that abound at this time, and executing some dynamic sector rotation plays.
Leveraging Volatility
A few great ways to take advantage of volatility amid Trump’s chaotic economic plan are to use either the straddle or strangle trade.
- Straddles: A long straddle is best used when you’re anticipating a significant price movement in the underlying asset, but you’re unsure of the direction. Traders can secure a profit regardless of direction, so long as there is plenty of implied volatility hitting the market. Short straddles can be used if you believe the underlying asset price will remain stable or that any price movement that happens will be limited.
- Strangles: This move is best to use if you anticipate a significant price movement in the underlying asset,t but you’re unsure of the direction, much like straddles. However, the strangle differs in that the cost is much lower than a straddle and it needs much larger price movements to be profitable than a straddle.
Whether you’re using a straddle or strangle, you can capitalize on big price swings without predicting direction. A good move right now might be using a straddle on SPY (S&P 500 ETF) amid tariff announcements. Knowing Trump and his business savvy, as well as the economy he was able to create in his first term, there’s a chance that this could all work out in the end, but you might not want to stake a trade on that just yet. It’s totally understandable—the straddle lets you profit so long as there’s volatility, and you don’t have to get the direction right.
Hedging Against Uncertainty
To hedge against the uncertain future of the market, we’d recommend trying out protective puts on tariff-sensitive stocks to guard against sudden drops. You have stocks like Tesla where they might lose 15% of their value in a single day. Protective puts are a good move to hedge against losses like this and still secure a profit with the bearish market outlook that many traders have right now with the big change-ups that are coming down the pike with the Trump administration.
Another dynamic move you can make trading options in the current environment would be to buy VIX call options, which function as a broad market hedge. Because it’s a measure of implied volatility, VIX tends to rise in periods of market stress. Traders can still secure profits when the market is experiencing a higher level of implied volatility, but they can also offset potential losses in their portfolios.
Sector Rotation Plays
It’s during times like this where traders can profit significantly from sector rotation where they strategically shift their investments between multiple sectors of the economy. The idea is to pivot and direct your attention to investments that will play well to the current economic cycle. Because the Trump administration has a focus on building up the US manufacturing base, it might be a good idea to buy up bullish calls on domestic manufacturing (such as industrials ETF IYJ) if tariffs succeed in reshoring jobs.
On the flip side, options traders will want to buy bearish puts on import-reliant retailers ( like Walmart or Target) facing higher costs due to tariffs on goods imported from countries like China. Buying puts on the stocks of companies that are still sourcing their goods from countries like Mexico, China, or Canada is a good way now for options traders to profit by betting on a decline in stock price for these companies.
Timing the News Cycle
Traders can use volatility in the market to their advantage with straddle or strangle plays, hedge against uncertainty with protective puts, or rotate their investments into sectors whose trajectories are relatively easy to predict, but doing this correctly can only happen if you’re keeping a close eye on market news surrounding these matters.
We’d highly advise our raiders to monitor Trump’s speeches and White House press releases for real-time catalysts. The quickest and easiest way to get the relevant information you need to make quick trading decisions is to follow what’s occurring on X (formerly Twitter).
A good example of timing the news cycle right now is to execute quick scalp trades on tariff delays or exemptions. Traders can profit from smaller price changes and then make a fast profit off of reselling their positions.
Risks and Challenges
Trading during this time when there’s considerable uncertainty in the markets comes with some significant risks and challenges that you need to know about before trying out volatility plays, executing hedges, or rotating your investments into strong sectors. In this portion of our guide, we’ll address the dangers that come with unpredictable policy direction, overbought volatility, and the risk of recession.
Policy Whiplash
We’d be remiss if we did not address the unpredictable nature of Trump’s economic plan and how it could burn traders who aren’t tailoring their current approach around volatility, sector rotation plays, or buying put options on declining stocks. Traders who have trading plans centered around consistency in the affected markets or sectors are going to incur losses if they stay their current course. The unpredictability of Trump’s “ping pong” tariff moves can whipsaw markets and burn traders betting on consistency, a significant risk to traders who cannot pivot to accommodate the changing environment.
Overbought Volatility
In this context where the market is experiencing long periods of sustained implied volatility due to the uncertainties of Trump’s economic plan and its future, there’s a real and present risk of overbought conditions being created in the options market.
Sustained high IV could make options expensive, reducing profit potential if volatility mean-reverts.
While the asset prices in some sectors might have risen rapidly (maybe even beyond intrinsic value), you could run into a situation where there is a pullback or correction following a period of the asset being overbought. Traders could encounter the risk of the asset losing a ton of its value because the excessive buying driven by fear was pushing the prices beyond their fundamental value.
Recession Risk
There’s a real possibility that the current tariff strategy by the Trump administration could usher in an economic slowdown. Whether it’s short- or long-term remains to be seen, but a slowdown of this kind could tank equities. They could even overwhelm well-hedged positions. You can see this possibility with the EY model predicting a 1.5% GDP hit. Even if you have well-hedged positions, you could still stand to lose money if an economic recession sets in.
Expert Insights and Predictions
Let’s take a look at what some of the experienced investors and traders are saying about Trump’s approach to implementing his economic plan. We’ll highlight the current market sentiment in the most nuanced way possible and give you some ideas of what the 2025 outlook might look like based on the beliefs of those who are well-seasoned in economic matters.
Market Sentiment
Right now, the sentiment for the options market is a mixed bag, with some traders being highly critical of Trump’s current economic plan and having a bearish outlook on the future, while others see the current slump as being temporary with volatile sell-offs possibly ushering in a period of stability.
The Chicago Board Options Exchange (VIX) has been fluctuating, the 10-year US Treasury yield is lower, and the US Dollar Index is lower. It’s data like this that’s led a lot of traders or investors to be pessimistic about stocks’ short-term outlook. Only around 19% of traders are expressing bullish sentiment (expectation that stock prices will rise over the next six months), according to an AAII Sentiment Survey.
A good example of this is the chief investment officer of Cetera Investment Management, Gene Goldman, saying, “the Trump bump has turned into a Trump slump.”
It’s hard to deny that some investors and traders have shifted their level of confidence in Trump’s economic plan. That’s neither a condemnation nor approval of Trump’s approach as it’s still way too early on to tell and there are still dynamics from the prior administration that have had lasting effects on the new administration. However, some investors have shifted their market outlook.
2025 Outlook
May we present a balanced take on this?
If tariffs stabilize as a negotiation tactic, volatility may ease. What this would mean is that options traders could pivot away from strategies like straddles or strangles (volatility plays) and shift that energy to trading techniques like short or long iron condors that rely on stable markets. There would also be opportunities to buy call options on stocks in certain sectors if uncertainty about their future eases.
On the flip side of the count, if these tariffs escalate into a prolonged trade war, you can expect a choppy year. Traders would do well to use the strategies we suggested in this guide like the volatility moves with straddles or strangles, hedges through protective puts, and shifting investments to sectors that rely heavily on domestic production of goods and services.
How does the overall 2025 outlook on the markets tie in with options trading?
In addition to the strategies, we’ve mentioned that let options traders succeed in these uncertain conditions, it’s worth noting that sellers of premiums can benefit greatly from higher levels of VIX that persist for a prolonged period. Premium sellers or short options can profit from selling options and they profit the most when the options they sold lose their value. When VIX is high, so are option premiums, and the sellers can collect large premiums from the sale, and there’s little likelihood that the buyers are going to exercise the contract.
Practical Tips for Options Traders
To ensure that you have the best possible experience with trading options in light of the Trump tariffs and their impact on the markets, we’ve included some realistic and practical trading tips that can get you into the good practices and techniques for maximizing your profits and limiting potential losses. Traders can generally apply these principles to options trading in just about any other kind of economic conditions are markets—they’re the evergreen concepts that let options traders succeed over time.
Technical Tools
Any trading session should include technical indicators and other analysis tools to gather the data needed to make the right moves. In the context of trading around the Trump tariffs and the volatility that could come with that, we’d recommend Bollinger Bands or RSI to spot overreactions in tariff-sensitive stocks. Using the Relative Strength Index, a value of 20 suggests that the market is oversold, and a value of 80 or more indicates overbought conditions.
Building off the RSI, Bollinger Bands that have prices touch or move outside of the upper band could indicate overbought conditions for a stock that presents a prime selling or short opportunity. Using both of these technical indicators in conjunction with one another, you can get a clear picture of the market and if it’s overreacting one way or another to what is happening. There’s a chance the trend could reverse. Be prepared for those conditions (or perhaps the stock will continue in its current pattern) using Bollinger Bands and RSI.
Risk Management
Remember to work good risk management tools into your trading sessions to minimize risk. Use a position size of no more than 1% or 2% on any investment to preserve your capital against possible market fluctuations. It’s imperative to set up stop-loss orders on any position in your portfolio to automatically purge losing positions early, avoiding bigger losses later on. Given the erratic news flow, stop-loss orders and conservative position sizing are the best techniques for dealing with the impacts of the Trump tariffs on the market, at least for now.
Stay Informed
We suggest following X for real-time updates from traders and analysts reacting to Trump’s moves. Arguably, this is the best and fastest way to get the timeliest updates, given the popularity of X. If you’re using an online trading app, you can also keep in the loop on significant market shifts using alerts and notifications. Staying informed is the key to staying ahead of the changes and preparing the best possible strategy for dealing with the changing conditions.
Trump’s Tariffs: Chaos or Cash for Options Traders?
Trump’s trade policies are shaking up options markets with volatility, sector shifts, and new trading opportunities. While there’s plenty of uncertainty about the future of the US economy under Trump’s current economic plan, there are still plenty of ways that options traders can make money including volatility plays, hedges, and sector rotation to capitalize on making money by betting on predictable market sectors.
During this time, it’s key to adapt your strategies and stay nimble. If volatility is prevalent, be sure to use straddles or strangles to capitalize on those conditions without having to predict the exact direction. The economic outlook might not look the best right now for certain sectors, but there are sectors like manufacturers who have a business model that is centered around domestic production. Focus your investments in these places.
In 2025, Trump’s trade wars might just be the options trader’s best friend—or worst enemy. Your move. There’s always a way to make money trading options, even if the economic outlook is uncertain and volatile. Place your money with companies that produce in the US. Use volatility plays when the road is bumpy. Buy calls on stocks expected to rise, and buy puts on stocks expected to decline. It’s all your move!
